This Trade No Longer Works?

While concerns about Egypt are being touted as part of the reason for oil's resilience in the face of dollar strength, there's more going on. If you look back to the Arab Spring and the first uprising in Egypt, that's when Brent exploded and became the global benchmark, with a premium north of $25. But that's not happening this time.

Brent's premium over West Texas Intermediate Nymex crude has dipped below $5 this week, as the prospect for the U.S. economy remains stronger than the global outlook, and some of that Cushing bottleneck has been eased.

"There is almost a rush to price in the rapid inventory decline in Cushing, Okla.," wrote Mike Fitzpatrick in the Kilduff Report research note Tuesday. "The narrowing of the spread has been rapid and significant, but this is a classic case where you do not want to try and catch a falling knife. In fact, the narrative seems to grow more compelling with the advance of WTI versus Brent."

In a note to clients, Credit Suisse said WTI investors had been taking advantage of higher long-dated futures through a kind of carry trade, selling one-year contracts then waiting for them rise as they got closer to becoming the front month.

With prices for near-term futures now stronger than longer-dated futures contracts, a pattern known as backwardation, the situation has changed.

"This trade no longer works," Credit Suisse analysts wrote in a note to clients. "And the remaining, perhaps significant, positions are being unwound. To do so, funds must buy the front and the sell the back, further exacerbating WTI's backwardation."